HI5020 Corporate Accounting comparative analysis of the debt and equity position
Select two public limited companies listed on the Australian Securities Exchange (ASX) that are in the same industry. Go to the website of your selected companies. Then go to the Investor Relations section of the website. This section may be called, “Investors”, “Shareholder Information” or similar name.
In this section, go to your companies’ annual reports and save to your computer your firms’ latest annual reports consecutively for last three years. Do not use your companies’ interim financial statements or their concise financial statements. Please read the financial statements (balance sheet, income statement, statement of changes in owner’s equity, cash flow statement) very carefully. Also please read the relevant footnotes of your companies’ financial statements carefully and include information from these footnotes in your answer.
You need to do the following task:
- From your companies’ financial statements, list each item of equity and write your understanding of each item. Discuss any changes in each item of equity for your firms over the past year articulating the reasons for the change.
- Provide a comparative analysis of the debt and equity position of the two firms that you have selected.
Cash Flows Statement
- From the financial statement of your chosen companies, list each item reported in the cash flows statement and write your understanding of each item. Discuss any changes in each item of cash flows statement for your companies over the past years articulating the reasons for the change.
- Provide a comparative analysis of your companies’ three broad categories of cash flows (operating activities, investing activities, financing activities) and make a comparative evaluation for three years.
- Also provide a comparative analysis of the two companies that you have selected explaining the insights that you can get from the comparative analysis.
Other Comprehensive Income Statement
- What items have been reported in the other comprehensive income statement for each company?
- Why have these items not been reported in Income Statement/Profit and Loss Statements?
- Provide a comparative analysis of the items shown in the other comprehensive income statement section for the two companies. If these items were included in the income statement / profit and loss statements of each company, how would the profit attributable to shareholders of the company be affected?
- Should other comprehensive income be included in evaluating the performance of managers of the company?
Accounting For Croporate Income Tax
- What are the tax expenses shown in the latest financial statements of the two companies that you have selected?
- Calculate the effective tax rate for both companies that you have selected. Effective tax rate is calculated as (income tax expense / earnings before tax). Which one of the companies has the higher effective tax rate?
- Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded.
- Was there any increase or decrease in the deferred tax assets or in the deferred tax liability reported by each of your selected companies?
- Please calculate the cash tax amount for both companies using the book tax amount, changes in the deferred tax assets and deferred tax liability (please do your own research for your better understanding of these concepts and the method of calculating the cash tax amount the book tax amount.)
- Calculate the cash tax rate for both companies. Which company has higher cash tax rate? (Please do your own research to familiarise yourself with how to calculate cash tax rate).
- Why is the cash tax rate different from the book tax rate?
Please remember some aspects of your companies’ treatment of tax can be a very complicated area, particularly for some companies. For a better understanding of the concepts included in the assignment that has not been introduced in the class, please do your own research.
The report is prepared for analyzing the financial statements of the two companies listed on Australian stock exchange. Analysis is divided into four sub sections that is owner’s equity, cash flow statement, other comprehensive income statement and accounting for corporate income tax. Comparative analysis of financial statements of the chosen companies has been done for a period of three years. Such comparative analysis has been done for the separate financial statements such as cash flow statement, equity and debt position, statement of profit and loss and income statement. Azure minerals and Boral limited are the two companies operating in the material sector that have been selected from Australian stock exchange.
Azure mineral is the leading company of mineral exploration that is based in Australia that has developed its portfolio of based metal and high quality precious projects in Mexico. It was incorporated in year 2003 on 19th September. The principal focus of company is to explore the metals such as silver, gold, zinc and copper in Mexico. Capital structure of company is sound and its strong position helps in contributing to the progress of its mineral properties. Boral limited on other hand is the largest construction and building material group that was incorporated in year 1946 on 4th March. Company operates with its three important divisions comprising of material business in Australia that is well positioned and highly performing, growing and scaled building products and fast growing Boral interior linings with joint venture in Asia. Some of the external and economic factors have exposes the company to financial risk.
Analysis of owner’s equity of Azure minerals and Boral limited:
This section explains each items of equity of the chosen companies along with analyzing the change in figure giving explanation for same. The items of equity of Azure minerals limited and Boral limited comprise of contributed equity or issued capital, reserves and accumulated losses.
Explanation of items of equity:
Issued capital- Issued capital forms a portion of authorized capital and is also known as contributed equity. It is the amount that is held by the shareholders in the form of stocks or equity (Eikeland & Skjærseth, 2016).
Reserves- Reserves forms that portion of the profits of company that is invested in business for particular purpose. Such profits are set aside for strengthening the financial position of company.
Retained earnings- Retained earnings are the amount that is left after making the payment of dividend and are used for reinvestment in the business.
It can be seen from the financial statement of Azure minerals limited that there has been consistent increase in value of issued capital from $ 51121569 in year 2015 to $ 65581982 in year 2016 and further to $ 73027947 in year 2017 indicating that the contributions from owner has been increasing. Reserves value is recorded at $ 3063288 in year 2015 compared to $ 2909495 and $ 3371670 in year 2016 and 2017 respectively. The figure depicts that reserve decreased in initial year of analysis and it increased in the current year. On other hand, the amount of accumulated loss has been increasing from $ 46656589 in year 2015 as against $ 52909974 and $ 59895515 in year 2016 and 2017 respectively.